A Footnote First
Fear of financial insecurities of dependents in the backdrop of the breadwinner’s death is what life insurance sells for. So, whether you need insurance or not depends on what financial ground you are standing on. When your feet are on a hard ground, you have no need of it.
But most people are not that lucky. LIMRA’s 2014 statistics say 70% of the U.S. households with children under 18 would have trouble meeting daily expenses past their breadwinner’s death. While they would have trouble within months, 4 out of 10 of the families would have difficult days immediately after. With such shaky financial strength, most people cannot ignore life insurance. And when you decide and go for grabbing your policy, you have a whole pack of options. Universal whole life insurance is one that you may come across.
Do you know universal whole life insurance makes the second largest sale right after the traditional whole?
Yes, it does.
And the reason is despite some cons, it is especially suitable for new buyers.
We will learn about it right after a brief reminder the skeleton basics of life insurance.
The Major Branches of Life Insurance
Life insurance policies come down in two major streams: term life and whole life. The most important dividing factor that sets them apart is the duration of the policy. While term life insurance policies provide you temporary protection, its whole counterparts ensure lifelong protection. The second big factor is a term life insurance policy is designed only for providing death benefit to the policyholder’s nominees. But whole life insurance works for an investment, bringing in living benefit besides the death benefit. These basic differences work in several different ways and that brings up the universal whole life insurance.
Unlike its parent version, whole universal life insurance stands apart for its flexibilities. As term life proves a waster when the policyholder survives, whole life is the best alternative for you. But the traditional whole life insurance can be hard for you to grab for reasons. It has you locked in terms and conditions that may not be very user-friendly. On this policy, your rate of your premiums remains the same until the end day. In the same way, your coverage remains the same.
Being costly for investment portfolios, it can be hard for you to commit to a lifelong fixed rate and coverage. Your life situation may change for worse and make it hard for you to continue the policy. You may want to lower your coverage in that situation. Unlike the traditional or ordinary whole life insurance, your universal whole life insurance lets you lower the coverage to suit to your need. Conversely, you may need to raise your coverage as your financial situation changes for better over time. Very reasonably, you may wish that you had a bigger coverage. Universal whole life insurance makes it possible you to have it the way you might want.
Pros of Universal Whole Life Insurance
As you already know, universal life insurance belongs to the whole life insurance category. Any whole life insurance plan bears promise of lifetime protection for its buyer. A universal life insurance policy has this protection guarantee for you.
Death benefit is the primary focus you purchase your life insurance for. No matter when you die, your beneficiaries receive it.
Tax-free Living Benefit and Access to Cash
You have already learned that universal whole life insurance acts for an investment channel for you. From investment of part of your premiums into the money market, your insurer generates profit and shares it with you. The purpose of the cash value of the whole life insurance policies, however, is to build the death benefit which becomes due upon death or maturity. It is often a misunderstood facet of the whole life insurance. Buyers often believe that the cash value is part of their savings check. However, you have access to the cash value when you are on a universal life insurance policy. You can use it for personal use through loans. Or you may use it to pay your premium dues.
Flexibility of Coverage and Premium
Life insurance policies are repelling often for the way they appear rigid. You may often find the choice to re-configure your coverage useful enough. It surely gives you the opportunity to tune your financial status and need to the life situation. A fixed-coverage and fixed-rated plan would virtually turn into a burden on your shoulder. In place of bringing the much-advertised peace of mind, such a policy takes it away from you. Thus, offering flexibilities, your universal whole life insurance ensures your peace of mind as a matter of fact.
You Can Forgo the Cash Value
After you have run your universal whole life insurance for several years, you may find the policy burdensome. If it so happens and you think you had better continue the life insurance, you can keep only the life insurance alive. You may skip the cash component so long as you pay the insider costs the company take-out each month from your payment. All you have to do for this is to keep the minimum payout upfront.
This, of course, will affect the death value.
A Tentative Take
The flexibilities are especially significant when you want to take life insurance as a tentative issue. You understand you want a whole life policy. But are not sure whether you will be able to keep paying up a fixed amount of premium on a regular basis. Nor are you sure about the right coverage that you should choose. Universal whole life insurance offers you the flexibility to keep only the life insurance component alive.
There is another positive that many universal life insurance products are lapse-protected even up to a lifetime. If you want to revive a policy upon payment of all dues these this allow you to do so. This is better than the usual three or four weeks grace period protection most policies offer. However, this may depend on the company you deal with.
Cons of Universal Whole Life Insurance
However attractive the advantages of universal whole life may seem, its demerits are worth considering. Read on to know them:
Coverage Re-configuring May Be Subject to Proof
Taking it for granted that you can re-frame your coverage at your sweetest will may not be the whole truth. It may require you to medically re-prove your insurability in order for that. So, it is advisable that you talk it out with the insurer.
No Real Investment
You may find the cash value offer of universal life insurance to be lucrative. Though it comprises of such a component, the bait may not be the right bet for you. The component of this policy is not to supplement your income. Instead, its purpose is to complement the maturity value. So, if you take out loans, your insurer charges interest on you. It should be disappointing for you to know as well that your outstanding loans will go off from your maturity value. This clearly lowers the death value.
What Life Insurance Mentors Team Say
Universal whole life insurance can be pretty intriguing for you. Even if you leave the investment thing aside, it may sound buyable. That the cash value goes to pay off the premiums can be a true teaser. If you are in for whole life insurance and need to experiment with it, you can go for it. You have all the benefits of whole life insurance plus the flexibilities as a bonus to get with it.